Insights from the National Commission on Energy Policy – Electricity Sector Findings

1. Insights from the National Commission on Energy Policy – Electricity Sector Findings Massachusetts Restructuring Roundtable Power Delivery Issues in New England – Post-Blackout Recap Susan Tierney, Managing Principal September 19, 2003

2. mandatory and enforceable • Bi-partisan commission • 18-member board of leading energy experts from industry, government, academia and groups representing labor, consumer protection and environmental interests. • Founded in 2002 by the Hewlett Foundation and its partners • Pew Charitable Trusts, MacArthur Foundation, Packard Foundation, Energy Foundation Developing comprehensive recommendations • Long-term national energy policy for release in 12/2004 • Interim reports on special topics

3. National Commission on Energy Policy John Rowe, Exelon, Co-Chair Bill Reilly, former EPA, Co-Chair John Holdren, Harvard, Co-Chair Phil Sharp, VanNess Marilyn Brown, ORNL Ralph Cavanagh, NRDC Archie Dunham, Conoco Rodney Ellis, Texas Senate Leo Gerard, United Steelworkers Hank Habicht, GETF Andrew Lundquist, Lundquist Group Mario Molina, MIT Sharon Nelson, Washington AG Linda Stuntz, Stuntz & Davis Sue Tierney, Analysis Group Jim Woolsey, Booz Allen Martin Zimmerman, Ford Jason Grumet – Executive Director

4. National Commission on Energy Policy • First Interim Paper: “Reviving the Electricity Sector” • Among additional urgent problems cited by the NCEP report: • Investment in all categories of electricity infrastructure is down significantly. • Electricity-related firms are stuck between uncertain regulatory regimes, with no assurance about the rules that will determine commercial survival and success. • Small customers continue to need and to desire traditional regulated electricity supply and price. • State and federal authorities have been unable to resolve basic jurisdictional issues. • Need for greater regulatory clarity concerning which entities are responsible for long-term resource investments, a key factor in promoting increased reliability.

5. National Commission on Energy Policy • “Reviving the Electricity Sector” • Particularly acute problem: The lack of new investment in the nation’s transmission infrastructure • To address this concern, the Commission recommends: • transmission owners and operators should identify and consider all potentially cost-effective solutions (including demand reductions and new technology as well as new transmission facilities) • FERC clarify cost-recovery for transmission investments; and • more regional resource and grid enhancement planning be undertaken • make current voluntary system of reliability rules mandatory and enforceable • additional resources should be provided for grid security as well as advanced distribution and transmission technologies

6. National Commission on Energy Policy • “Reviving the Electricity Sector” • “The current system represents the worst of both worlds. Competitive markets are not delivering promised benefits for retail consumers or promoting adequate investment by businesses. Meanwhile, as tens of millions learned recently, regulation is not providing adequate reliability. Our recommendations are geared toward developing a regulatory framework which will allow markets to produce benefits while creating conditions that will ensure reliability, security, investment and flexibility for states and regions.” • ----- Paul Joskow

7. National Commission on Energy Policy • “Reviving the Electricity Sector” • Security and Reliability: • The nation should maintain dispersed and well-guarded stockpiles of critical equipment with long replacement lead times and to standardize such equipment when feasible. • Congress should approve proposals to make mandatory the reliability rules for electricity grids. Voluntary compliance is no longer adequate. • Transmission owners should be challenged to identify all potentially cost-effective solutions to congestion and reliability problems. • Congress, FERC and state regulators should encourage more regional resource and grid enhancement planning. • The electricity sector’s research and development investments need to be revived.

8. National Commission on Energy Policy • “Reviving the Electricity Sector” • State and Corporate Responsibilities: • Retail distribution should remain a responsibility of utilities under state and local regulation • Large customers who choose regulated portfolio service should be required to execute long-term contracts with the utility portfolio manager. • State regulators and boards of consumer-owned utilities should focus on incentives for good portfolio management service. • FERC’s efforts to ensure nondiscriminatory transmission operations and access to grids and wholesale markets should be continued and supported. • Appropriate deference needs to be exhibited for states that have not adopted retail competition and individual states’ crucial role in ensuring resource adequacy.

9. National Commission on Energy Policy • “Reviving the Electricity Sector” • Environment Performance: • Congress should establish a firm multi-year schedule of phased emission reductions that accommodates both environmental and system reliability needs • Congress should use market-based mechanisms to the maximum extent feasible to minimize compliance costs and encourage innovation. • Congress should tighten energy efficiency standards where practical and cost-effective.